February through to the end of March is always a busy time for advisers. There is plenty to discuss with clients, from the basics of maximising their Isa and pension contributions through to more sophisticated investments, such as enterprise investment schemes and venture capital trusts, and planning, such as assets relocation between spouses and civil partners.
This year is no different. Except, that is, for one group of individuals: non-UK domiciles. For them, this tax year end has particular significance. It has taken time, much consultation and deliberation but there is no doubt we are about to witness the most fundamental change to the taxation of non-domiciles for a generation.
It is debatable which will have the biggest impact, affect the most individuals or, if you are HM Revenue & Customs, raise the most revenue:
- The extension of deemed domicile principle, now 15 out of 20 years, to income tax and capital gains tax
- Non-domiciles born in the UK with a UK domicile of origin being deemed domicile at the point they become UK resident; or
- Individuals who are deemed domicile being taxed on their worldwide income and gains on an arising basis.
There is action impacted individuals can take but time is running out:
- Any individuals who will become deemed domiciled, under the 15/20 rule, on 5 April may be able to rebase overseas assets for CGT purposes. As a result, they may wish to consider deferring liquidity events or sales of offshore assets
- Individuals who will not be deemed domiciled should consider whether to be taxed on an arising basis for 2016/17 or a remittance basis. The decision will come down to the level of overseas income and gains, UK income and gains, the amounts remitted to the UK during 2016/17 plus the availability of overseas tax credits
- Non-domiciles should review any remittances for 2016/17 as there may be scope for further remittances or, alternatively, it may be possible to take remedial action to reduce future liabilities. This can be achieved by transferring non-UK funds to the UK and investing in certain qualifying companies: business investment relief (although it is interesting to note the Government has announced the scope of business investment relief, that allows tax free remittances of amounts to be used for certain business investment, will be extended from 6 April)
- Spouses or civil partners, where both are non-domiciled, could benefit from the reorganising of the ownership of overseas assets that generate unremitted income or gains such that they are held by one party only and, as a result, only one remittance based charge is due
- Care should be taken where the non-domicile is using overseas income or gains as security for debt, as this could potentially give rise to a taxable remittance
- Any clients with UK property held via offshore structures should review their position and likely UK inheritance tax exposure.
These issues and the taxation of non-domicile individuals are complex but significant savings can be made and, even once the 6 April has passed, there will still be opportunities.
For example, the aforementioned business investment relief, “cleansing” capital and income, offshore investment bonds for the tax- efficient remittance of funds to the UK and use of whole of life assurance in trust to deal with the increased IHT liabilities that will inevitably arise for such individuals, particularly those with UK property.
So while 6 April is not the be-all-and-end-all it is nevertheless a date that should be high in terms of priorities for non-domiciles and their advisers.
Tony Mudd is divisional director of tax and technical support at St James’s Place